Carmakers turnaround

February 9, 1984

Talk about fancy driving! The deft financial turnaround now under way by the major US automakers shows that there's still plenty of inventiveness left in Detroit. The challenge for the US auto industry now seems clear: ensuring that the current entrepreneurial momentum continues, without reverting to the complacency that gripped much of the industry a decade or so ago.

It was only three or four years ago, it should be recalled, that some analysts were wondering if the US car industry - hit by rising consumer demand for foreign imports - might be reduced to just one or two firms. In 1980 General Motors even lost money, the first time the nation's largest carmaker had done so since the 1920s.

Now the extent of the turnaround at GM is underscored by the new earnings figures released this week. GM earned $3.7 billion during 1983 compared with $ 962 million in 1982. Ford and Chrysler will release their earnings results later this month. Both are expected to show hefty profits. And car analysts believe that 1984 will be an equally good year.

How does one account for what must be considered - to date at least - a major industry success story? Detroit, of course, shares in the general economic upturn. But four factors unique to the US car industry stand out.

* Greater efficiency. Through the increasing use of robotics and other technological innovations as well as a smaller, leaner work force, the industry has substantially reduced its break-even point on car production.

* Better management-worker cooperation. Much of the stepped-up worker esprit stems from concerns about being laid off at a time of economic uncertainty. But equally crucial are profit-sharing plans, production review meetings, and other motivational arrangements. What must be avoided at all costs is a return to the labor-management confrontations of past years.

* Quotas on Japanese imports. The quotas were recently extended (and slightly enlarged) for a fourth year - to end in March 1985. But it would be unwise for quotas to be continued beyond next year. Detroit's long-range need, after all, is to open additional markets abroad (something it has already done well in Europe and Latin America.) For Detroit to win permanent quotas at home while seeking the end of trade restrictions abroad would be contradictory.

Detroit still faces hurdles. All the US manufacturers, including smaller French-US owned AMC, remain vulnerable to Japanese imports. Still, for an industry that recently had its back to the wall, the latest earnings figures can only be considered encouraging.